Completing and implementing a modern, simple VAT system with few exceptions. This is one of the central requests made to San Marino by International Monetary Fund experts at the conclusion of their mission, conducted from 26 October to 5 November. The Fund acknowledges improvements in public finances, but insists these must be accompanied by reforms capable of strengthening revenue and making spending more effective.
The guidance on VAT is precise: the system must align with international and European Union best practices, limit exemptions and differentiated treatments, contain transition costs, and reduce opportunities for evasion.
The point therefore concerns both the rules of the tax itself and how they will be applied. A system with numerous exceptions and special regimes can become harder for businesses to manage and for the administration to oversee. The direction indicated by the Fund points towards a more uniform structure, with fewer openings for circumventing tax obligations.
No rates, entry-into-force date, or categories subject to specific treatment are specified. The mission’s conclusions set out a reform direction without defining how much households and businesses would actually pay. They therefore do not allow for quantifying potential effects on prices, specific sectors, or overall revenue.
The reference to transition costs also carries practical weight. The Fund asks that the burdens of change be kept to a minimum: simplicity should apply both to the ordinary functioning of VAT and to the process of getting there. Timing, procedures and administrative capacity will therefore be decisive in translating the reform into practice.
VAT is listed among the priorities of fiscal policy, while implementation of the Association Agreement with the European Union is addressed on a separate track — one focused on regulatory alignment and institutional strengthening. The Fund does not present the introduction of the tax as an automatic consequence of signing the Agreement.
The request follows a positive assessment of the income tax reform implemented in 2026. According to the experts, this reform broadened the tax base, improved compliance, and strengthened progressivity. VAT represents another priority measure in the ongoing overhaul of the tax system.
The starting point is public debt that has fallen to 59.8% of GDP. In 2025, San Marino recorded its fourth consecutive primary surplus: the balance between revenue and expenditure, before interest payments and net of banking sector support, reached 3.8% of GDP.
To continue reducing debt and maintain available resources in case of difficulty, the Fund recommends a primary surplus of around 2.5% of GDP over the medium term. Fiscal improvement must therefore go hand in hand with spending control, while still leaving room for investment.
A contribution to stability came from the €350 million Eurobond issued in April 2026, with a five-year maturity and a coupon of around 3.6%. The operation secured in advance the resources needed for the bond maturing in January 2027, reducing the risk of having to source financing close to the repayment date and extending the maturity horizon to 2031.
The economy, however, continues to grow at a modest pace. After an estimated +1.5% in 2025, the IMF forecasts GDP growth of 1.3% in 2026 and 1% in 2027. At the same time, average inflation is expected to reach 2.5% this year and 3.5% next year.
The Fund acknowledges that fuel subsidies have cushioned the impact of price rises, but notes that broad-based support has diverted resources from other priorities. It therefore calls for more targeted assistance and a review of subsidies, tax breaks and transfers, in order to identify funds that could be redirected towards measures with greater economic or social benefit.
Among the investments to be supported are healthcare infrastructure and energy, with particular attention to solar production and, potentially, battery storage. Projects must be rigorously costed and remain compatible with the ongoing reduction of debt.
Another source of pressure comes from population ageing. According to the mission, a further pension reform will likely be necessary to prevent the depletion of reserves. Among the options outlined are changes to the retirement age, penalties for early retirement, and benefit parameters, while safeguarding the adequacy of pensions.
European integration will also require resources. The Fund calls for the administrative and institutional costs of the Agreement to be calculated and incorporated into budget planning, with targeted hiring and investment in skills and IT systems.
On the banking front, liquidity and asset quality have improved, but vulnerabilities remain. Non-performing loans are still high, and some banks have limited capital and liquidity buffers. The experts call for strengthening capital, cutting costs, and resolving the difficulties of institutions seeking new investors, relying primarily on private-sector resources.
